The New York State Department of Financial Services (NYDFS) has issued updated guidance for firms engaged in the crypt or “virtual asset” sector.
NYDFS created a path for regulating digital asset firms fairly early on in the emergence of crypto. The announcement issued yesterday aims to provide guidance that protects consumers in the case of insolvency.
As industry followers understand, several digital asset firms have filed for bankruptcy, frequently in the US Bankruptcy Court for the Southern District of New York. In the past year, firms like Genesis, BlockFi, FTX, and others have filed for bankruptcy protection. The guidance effectively reiterates the need for “sound custody and disclosure practices” by crypto firms. The guidance applies only to firms licensed by NYDFS or chartered to custody digital assets. NYDFS entities are licensed under the BitLicense and a Limited Purpose Trust Charter.
NYDFS Superintendent Adrienne A. Harris, commented:
“DFS’s virtual currency regulation has protected New Yorkers since 2015. Today’s guidance reminds DFS-regulated virtual currency companies of our expectations regarding the safekeeping of customer assets.”
The guidance on potential insolvency includes:
- Segregation of and Separate Accounting for Customer Virtual Currency
- Virtual Currency Entity (VCE) Custodian’s Limited Interest in and Use of Customer Virtual Currency
- Sub-Custody Arrangements
- Customer Disclosure
These actions may be well-intentioned, but they may be a bit late to the game. Customers of bankrupt crypto firms may end up losing billions of dollars following the failures of insolvent firms.
The document as of today is available below.